Citigroup's profit misses estimates

Oct. 15, 2013
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A Citi Bank in Chicago. / Kiichiro Sato, AP

by Tim Mullaney, USA TODAY

by Tim Mullaney, USA TODAY

NEW YORK - Citigroup reported a third-quarter profit of $3.2 billion, or $1 a share, as the nation's third-largest bank continued its drive to push down expenses and shake off the aftereffects of the 2008 financial crisis.

The results released Tuesday worked out to $1.02 a share, excluding certain accounting adjustments, missing analysts' forecasts for profit of $1.04 a share. Revenue climbed 31% to $17.9 billion, missing estimates of $18.73 billion.

In last year's third quarter, Citigroup's net income was $468 million, or 15 cents a share, on revenue of $13.7 billion. Excluding one-time losses last year, profits fell 4% during the quarter, Citi said.

Citi CEO Michael Corbat has said he wants to get the bank back to industry-average levels of profitability by about 2015, after years of underperformance. Driven by expense cuts and lower losses at Citi Holdings, a unit set up to manage underwater mortgage securities and other troubled assets, Citi posted a return on assets of 0.69%, up nearly seven-fold from the same quarter last year. Corbat has set a 2015 target of 0.9% to 1.1% return on assets.

The results show Citi continuing to make progress, Raymond James analyst Anthony Polini said. Though Citi's business isn't likely to grow much, shareholders should benefit from cost cutting that boosts profits, higher dividends and the recapture of reserves set aside to cover mortgages that were underwater but have regained value as home prices rise, he said.

"There was continued good news on credit quality and capital,'' Polini said. "The recovery story is very much alive and well. Over the next two years, this will be a return of excess capital story driven by lower expenses, reserve releases and flattish revenue.''

"It's getting better,'' Lewandowski said, adding that Citi's international franchise and low stock price are still attractive. "It's not getting better as quickly as I'd thought. In banking, getting from 0.7% return on assets to 0.9 or 1.1 is a long way. It's going to take some time.''

The bank said it had been held back by outside factors ranging from uncertainty over the Federal Reserve's moves on interest rates and bond buying to the impact of the government shutdown and potential risk of default if the debt ceiling isn't raised. Corbat said on a conference call with analysts that the bank has sold all of its Treasury securities that are due to mature by Nov. 1 and has "de minimis" exposure to government debt due to mature before Nov. 16.

"We see a continued challenging environment, but we are focused on things we can control,'' Chief Financial Officer John Gerspach said on the call.

The bank said its total overhead expenses were $11.7 billion, moving toward Corbat's goal to push spending below $11 billion per quarter by the end of the year. The 11,000 layoffs announced shortly after Corbat took over last year are the centerpiece of Citi's cost-cutting plan.

"I want Citi to be an indisputably strong and stable institution, and we made progress toward that goal,'' Corbat said.

Some analysts questioned whether Citi is going to need to make even more layoffs because revenue isn't growing fast enough, a view Corbat disputed.

"The concern is, is this an inflection point in what has been a decent record?" over the past 12 months, KLSA analyst Mike Mayo said.

In early afternoon, Citi shares were up 11 cents to $49.72 in New York Stock Exchange trading.